Payola Trial a Textbook Case in Bungling : Entertainment: The government went after the Moby Dick of music promotion, but the big one got away. Future prosecutions won’t be easy.

A federal judge’s abrupt dismissal this week of the biggest music payola and racketeering trial in 30 years highlights a textbook example of government bungling and could make it much harder to prosecute future cases of alleged payola or other wrongdoing in the music industry, experts say.

In its attempt to prosecute controversial record promoter Joseph Isgro and two others, the government seemed to drop the ball: It fired the prosecutor who had spent the most time developing the case, after questioning the scope and direction of his investigation. It then assigned the case to a series of other prosecutors. And then, with only months to go before the trial, the Justice Department dispatched its senior litigation counsel in Washington, William S. Lynch, to Los Angeles to take over the case.

Whether through oversight or some other reason, Lynch lost the Isgro case when he failed to turn over to the defense, as required by law, earlier statements of a key government witness. Judge James M. Ideman said those statements were “diametrically opposed in every respect” to the testimony that the witness gave to the grand jury that indicted Isgro, CBS Records Vice President Raymond Anderson and convicted cocaine dealer Jeffrey Monka.

“It’s hard to convict someone the government contends is sleaze when the government’s witnesses turn out to be sleaze,” said Gerald F. Guelman, dean of the Santa Clara University law school.

“To date, no one has ever served a day in jail for payola,” added Fredric Dannen, author of the new book “Hit Men,” which details the business methods and associations of Isgro and alleged corruption in the record industry.

“The payola laws are weak,” continued Dannen. “The one thing the record industry needed was a deterrent.” Instead, “they got a signal that you can do anything you want.”

A 57-count indictment dismissed “with prejudice” Tuesday by Ideman had accused Isgro, the most powerful and successful record promoter of the 1980s, of making “illicit and illegal payments” to employees at radio stations in California and Texas in exchange for broadcasting records being promoted by Isgro.

Isgro, 43, was also charged with giving cocaine to radio program directors in return for their playing certain records. He, Anderson and Monka had pleaded not guilty to the charges.

The judge’s dismissal “with prejudice” means that the charges against Isgro, Anderson and Monka cannot be refiled unless Ideman’s ruling is overturned on appeal. Prosecutors said they would seek Justice Department approval to file an appeal, but defense lawyers believe it is unlikely that approval will be granted because of the magnitude of the prosecution’s error.

In the meantime, both Isgro and his top lieutenant, Ralph Tashjian, are back in the record promotion business, working on behalf of many of the same large record companies they had as clients before. And some industry observers aren’t sure much was accomplished by the government’s massive five-year, multimillion-dollar investigation of purported organized crime involvement in the record business and, later, of alleged payola practices.

“Payola goes on; that’s the nature of the business,” claims one former associate of Isgro. “A lot of what the government says (about alleged payola) is true. But proving it is another thing. These are smart people you’re dealing with.”

Since 1960s, it has been a federal crime to exchange money or other inducements for broadcasting a specific record if the payment is not publicly disclosed.

Only a handful of people have been convicted under the 30-year-old statute because it is difficult to establish evidence that any payment was taken in exchange for playing a specific record, critics contend. What’s more, the statute was weakened in 1979 when the Federal Communications Commission ruled that “social exchanges between friends are not payola.”

Although several radio station employees testified that they received money or drugs from associates of Isgro, they took advantage of that loophole in the law by claiming that the drugs or money was shared on a social basis among friends and not in exchange for playing a particular record.

What’s more, Isgro contended that most of the 40-odd associates of his company were not employees but independent consultants over whom he had no control. He claimed to abhor even being in the presence of illegal drugs and said he never authorized any payola.

Keeping such a distance from the front lines of the record promotion business made it tough to establish a case against Isgro.

Still, some maintain that the government’s case against Isgro was strong.

“They apparently believed that they had sufficient evidence from all the witnesses that payola exists,” said Marvin L. Rudnick, the former Justice Department lawyer who led the Los Angeles payola probe in its early days and who was dismissed in July, 1989, after clashing with his superiors. “The grand jury indicted on the basis of some of that evidence,” Rudnick noted, but because of the government’s blunder, “the true story (of payola) will never be told.”

The government’s case began to unravel Aug. 29 when Judge Ideman excused the jury and announced that defense attorney Gerson Horn had obtained the previously undisclosed testimony of Isgro’s former accountant, Dennis Di Ricco, from his 1988 trial on money-laundering and drug charges.

Horn said the document contradicted Di Ricco’s testimony before the Los Angeles grand jury in more than 70 instances. The testimony revealed that Di Ricco--contrary to what he later told the grand jury--denied passing laundered money to Isgro or to bodyguard David Michael Smith.

After reviewing the testimony over the Labor Day weekend, Ideman dismissed the case, calling the government’s conduct “outrageous.”

Despite the ruling, however, legal experts, independent journalists and, privately, even some radio and record executives continue to insist that payola lives.

“The government brought enough people forth on indictments all saying there was something going on here. . . . They just botched it,” said Jim Carnegie, publisher of the trade newsletter Radio Business Report.